Preparing to Buy a Home for the First Time

Providing Mindful Lending to Arizona, California, and Colorado

What is a First-Time Home Buyer?

A first-time home buyer refers to someone who has never owned a home or has not owned a home in the past three years.

Mindful Money loves helping first-time home buyers in Arizona, California, and Colorado achieve their goal of home ownership. Every buyer is different and needs a mortgage that fits their unique situation. We work closely with our clients to match their needs, goals, and plans to a mortgage. Mindful Money works with dozens of wholesale lenders that offer a variety of mortgage loan products to help first-time buyers achieve their dreams.

Housing markets differ from state to state; we are experts in Arizona, California, and Colorado. First-time home buyers should work with an experienced mortgage broker who understands their local market. The broker can find the best mortgage at the lowest rates and fees that fit their needs. As this is one of the most significant purchases anyone will make, and they need to trust the mortgage broker they are working with to find the best deals and programs.

We want our first-time home buyers to be fully educated about the mortgage process and their new mortgage. Overcommunication is our goal. It is important for a first-time home buyer to have a home-buying team that includes an experienced real estate agent who is ready to work with the mortgage broker to ensure that their client understands the entire home-buying process. We work closely with our first-time home buyers and their real estate agents to secure the best deal possible for them.

  • There are no stupid questions in the home-buying process, and we encourage our first-time home buyers to contact us anytime with questions or concerns about anything to do with the home-buying process, their credit, budgeting, or anything that comes up!

    Home ownership is how many Americans build personal wealth, so we offer several home-buying programs to help achieve that goal. Buying a home can be difficult because of the initial down payment and closing costs. Many Americans have lower credit scores, often due to medical bills or a lack of understanding of how credit works. We educate first-time home buyers on budgeting, understanding credit, and becoming successful homeowners. No matter where our clients are financially, we are partners and work with them so that they can achieve their goal of homeownership.

    We encourage anyone interested in buying a home to call us today to learn how to make their dream of home ownership a reality. 

    Let’s talk about some of the important terms prospective buyers should know.

Credit and Credit Scores

Credit scores are fluid and change over time. In fact, they change daily. Information about credit, credit scores, and debt management is not taught in school. Instead, we learn these lessons through trial and error. At Mindful Money, we want to change people's thoughts about credit and debt. Our mission is to educate as many first-time home buyers as possible about credit, credit scores, and debt management. We also do not judge anyone with bad credit. If someone does not understand credit, how can they know what to do to have good credit?

Here are some tips to improve your credit!

  1. Stop applying for credit: Even if your home-buying dream has been delayed, stop trying to obtain new lines of credit. Consult with the mortgage broker before providing anyone with your social security number or allowing them to check your credit. One credit inquiry can lower a person's credit score by 5 to 100 points.

  2. Monitor credit daily: Although there are multiple sources for free credit monitoring, we suggest focusing on two sites run by the credit bureaus instead of checking them all. 

    1. Credit Karma is run by Trans Union and includes credit scores and credit history submitted by Trans Union and Equifax. Since Credit Karma is a site offered by Trans Union, the information contained is the same as what is being reported on Trans Union and Equifax credit reports. Credit Karma also has great information and education about credit and is a terrific site for those who can resist the temptation of applying for any new debt and credit they offer. If you are serious about home ownership, do not apply for new credit without first speaking with a mortgage broker.

    2. Experian and Experian Boost: We highly recommend that anyone, even people with excellent credit, sign up for Experian Boost. Experian Boost will add routine monthly payments, such as streaming services, rent, cell phone bills, car insurance, and utilities, to an Experian Credit report, which can boost the score. We have seen people with no credit instantly get a 620 credit score by signing up for Experian Boost. We want all our first-time home buyers to have the highest possible credit scores when they are shopping for a home and mortgage.

  3. Pay off collection accounts: The credit bureaus have changed how they calculate credit scores and paying off collections, and charge-offs improve a person's credit. Start with the smallest collection account; call the collector and offer to pay them. Negotiate the payment and pay them less than what is owed. Be sure to get confirmation of the payment and the paid-in-full letter. Keep these documents!

  4. Pay down credit cards: A home buyer who owes more than 30% of their credit card's credit limit should focus on paying down their cards so that they are not using more than 30% of the credit limit. The most effective way is the snowball plan. Start with the card with the lowest balance and put extra money toward that card until it is paid off. While paying down one card, continue to make the minimum monthly payment on the others. Once one card is paid down, use the money to pay off the next card and the next until all debts are paid.

  5. Set up automatic payments: Contact creditors and have them change the due date to fall a few days after payday. Then, set up automatic payments for the minimum payment. This step will help avoid late payments.

We are here to answer questions about credit. Call us! We also have programs for people with 500 credit scores, but we prefer helping our clients have better credit to qualify for better loan programs.

Down Payment and Closing Costs

Most Americans have difficulty saving for their down payment and closing costs. In fact, the top two reasons someone cannot buy a home are low credit scores and not having enough money saved for the down payment and closing costs. We have solutions for all first-time home buyers.

A down payment is the amount of money that the home buyer must invest in order for a lender to give them a mortgage. Most first-time home buyer loan programs require at least 3% of the sales price to come from the buyer’s own funds.

The homebuyer also has to pay closing costs, which can be 3 to 5% of the sales price of the home, depending on where the home is located and third-party fees.

For every $100,000, a first-time home buyer can expect to need about $6,000 of their own funds to bring to closing.

The amount of money needed to buy a home can be overwhelming. The Mindful Money experts know that saving money can be challenging, especially with the current costs of things. We also understand there will not be a better time to buy a home than now. For this reason, we offer a wide range of first-time home buyer programs that include allowing gifts from family and friends, down payment assistance, programs that may include 2nd mortgages that do not need to be repaid, and ones that do require repayment. We also have programs with lower down payment requirements, lower interest rates, lower monthly mortgage insurance, and programs allowing buyers to get credit from the lender, seller, or real estate agents for closing costs. We have many first-time home buyer programs that include the perfect program to help home buyers achieve the American Dream of home ownership.

How much can you afford?

Mindful Money works with our clients to determine how much home they can afford according to the mortgage loan program guidelines and according to a monthly budget. The purchase price is determined by a buyer's debt-to-income ratio, or DTI. The DTI is calculated by adding up a person's monthly debt payments, such as credit cards, car loans, student loans, and rent, and dividing them by their monthly gross income (this is the amount made before taxes) and then multiplying that figure by 100 to get a DTI percentage. 

When reviewing a mortgage application, the lender will look at the borrower's front-end and back-end DTI. The front-end DTI is the percentage of an applicant's gross income that will be used for housing expenses, mortgage payments, property taxes, homeowners’ insurance, and HOA dues. The back-end ratio is the percentage of the applicant's gross income that will go towards new housing expenses, credit cards, and loans.

Most loan programs want a borrower’s front-end DTI to be no more than 28% and the back-end to be no more than 36%. First-time home buyer programs do allow for higher ratios, but this is not always good. To be successful, a homeowner needs to be able to pay their bills and have funds for emergencies like needing a new water heater or roof. Homeowners stretched too thin might have to choose between paying their mortgages or making necessary repairs to their homes. At Mindful Money, we believe developing solid financial plans before buying a home is essential to prepare for the unexpected.

Mindful Money helps home buyers understand how to budget and manage money to become successful homeowners. We do not want our clients to just buy a home; we want them to invest in their future through real estate. Call us today to get started on your path to homeownership.

Pre-Approval and Pre-Qualification Explained

The financial terms ‘pre-approval’ and ‘pre-qualification’ are often used interchangeably, but they have notable differences. Many lenders treat pre-qualification as a simple process where a loan officer asks basic questions about income, estimated credit score, debt, and down payment. This information is entered into their system to give an eligibility estimate, resulting in a pre-qualification letter with little value.

Some lenders define pre-approval as the stage where a loan application is submitted after a contract is signed, followed by a credit check, document collection, and review by an underwriter. During this time, buyers may spend money on inspections and appraisals, only to face disappointment if they do not qualify because their loan officer did not fully review their financials.

A reputable real estate agent will not show homes without verifying that a potential buyer’s mortgage broker has reviewed all supporting documents, taken a loan application, checked their credit score, and reviewed all supporting documents.

At Mindful Money, what is referred to as ‘pre-qualification’ aligns closely with what others might call ‘pre-approval.’ Thorough upfront due diligence creates a smoother home-buying experience. Clients are not considered ‘pre-qualified’ until their complete mortgage application and the supporting documents have been reviewed and processed through automated underwriting.

Mindful Money recommends clients complete a full mortgage application with all supporting documents before starting their home search to confirm eligibility. Our clients start the process with confidence, knowing that once an offer is accepted, they can proceed smoothly toward receiving loan approval and closing on their dream home.

After pre-qualification: the next steps

The first step is to meet with a real estate agent, specifically a buyer's agent, whose specialty is working with home buyers. The buyer’s agent will meet with the buyer to win their trust and have them sign a buyer broker agreement outlining what they will do for the buyer and how much they are paid for their services.

The agent discusses what the buyer wants in a home and their pre-qualification status. A reputable real estate agent will also call the mortgage broker to discuss the client's pre-qualification and ensure they only provide the buyer with homes for sale that meet their mortgage loan requirements and personal needs and wants. 

The buyer's agent will then set up an online search through the Multiple Listing Service (MLS), the online database where real estate listing agents advertise homes for sale. The MLS is only available to real estate agents and is the most accurate search engine for active home listings for sale. There are other online searches, such as Zillow and Redfin, but those are not the MLS and are not as accurate as the MLS. 

Buyers should work with their buyer's agent to see all the available active homes that meet their search criteria and select homes they want to see in person when searching for homes. The buyer's agent will call the Listing Agent on those homes and schedule showings. Generally, the buyer's agent will set up several showings in one day so the buyer can determine if any of the homes meet their requirements.

Offer Accepted

Many things occur once the home seller accepts a buyer's offer to purchase their home. Let’s cover what happens regarding obtaining a mortgage to buy that home.

Since you worked with Mindful Money for your pre-qualification, this process will be much simpler than if you had worked with another lender.

The mortgage broker will review the mortgage loan application and documentation to determine if any information needs updating. 

  • They will ask the buyer to provide: 

    • Current pay stubs and bank statements 

    • A quote for homeowners insurance on the new home

    • A copy of the check or wire to the escrow company for the earnest money deposit. 

    • A transaction history from the end of the last bank statement to the day the earnest money cleared the bank account (after the earnest money check has cleared the buyer's bank account)

  • They will shop for the best lender and programs for their client. They will submit the loan application to the lender so that the lender can underwrite the mortgage loan application.

  • They will order an appraisal of the home being purchased to make sure the price is typical of the market and that they are not overpaying. The lender’s underwriter will also want to review the appraisal, as it assures the lender of the home’s value and condition.

  • Once the lender’s underwriter has reviewed the loan application, the property's title report, and the appraisal, they will issue a final approval. The mortgage loan will then be cleared to close.

Closing and Keys

Once the mortgage is cleared to close, several steps occur: 

  • The lender will assign a funder to the loan file. 

  • The lender’s funder will work with the title company to establish and agree on the final loan figures, which include the buyer's down payment and closing costs. Then, the lender will send the loan documents to the title company.

  • The title company contacts the buyer to sign the final loan application and documents and bring the funds needed for closing. 

  • After the buyer signs the documents, the title company will send them to the lender for review. 

  • After review, the lender sends the title company the remaining money needed to close the loan.

  • After the title company has money from the buyer and lender, they will release the deeds, changing the home's ownership into the buyer's name. 

  • Once the sale is recorded, the real estate agent can hand over the keys to the new home.

After Closing

Things to Consider

  • Your mortgage broker can answer questions even after closing.

  • Buyers receive all kinds of mail for insurance and other services. Call the mortgage broker before taking any action regarding this junk mail. When in doubt, throw it out. 

  • The mortgage loan servicer and the entity to which mortgage payments are made can change. However, the principal and interest payment amount will only change if the loan is an adjustable-rate mortgage. Call your mortgage broker to confirm any changes to whom you make your mortgage payments.

  • A mortgage payment can change due to the balance in the escrow account. The amount collected for property taxes and homeowner's insurance can change, and often do, annually. If you have any questions about payment changes, call your mortgage broker.

  • Call the mortgage broker with any questions about your mortgage or refinancing.

FAQs

    • Seller: Current owner of the home

    • Buyer: Person(s) who has an accepted offer on the seller’s home

    • Listing Agent: Real estate agent who represents the home seller and looks out for their best interest

    • Buyer’s Agent: Real estate agent who represents the home buyer and is their advocate

    • Home Inspector: Licensed professional hired by a buyer to inspect the home they are buying and provide a report of any issues with the home.

    • Mortgage Broker: A person who has been a mortgage loan officer for at least five years and has taken additional training and testing to qualify as a mortgage broker. Mortgage brokers are experts in the mortgage lending space, and they work with buyers to select a mortgage loan program that works best for the buyer. Mortgage brokers work with wholesale mortgage lenders to whom they broker a buyer’s mortgage loan. Mortgage brokers are personal mortgage shoppers looking for the best rates, terms, and lowest costs for their clients. A mortgage broker is the buyer's point of contact for the entire mortgage process. They collect information from buyers and work with the wholesale lender on behalf of the buyer to secure financing.

    • Wholesale Lender: Wholesale mortgage lenders do not work directly with the public to obtain clients to originate mortgage loans. Wholesale lenders work with mortgage brokers who originate mortgage loans with them. Wholesale lenders offer lower rates and terms to mortgage brokers because they do not have huge overheads like mortgage banks and mortgage companies. This “reduced” cost is then passed down to the borrower working with a mortgage broker. The wholesale lender underwriters mortgage applications, funds those mortgages, and, in some cases, also services the mortgage after closing. 

    • Escrow / Title Company: Depending on the state, the title and escrow company can be the same or different entities. The escrow company is the neutral 3rd party that collects all the documents from the seller, buyer, title insurer, real estate agents, homeowners’ association, mortgage broker, and wholesale lender to close the sale of the home. The title company researches the title of the home to ensure that all liens on the home will be cleared at closing and that the only lien on the property after closing will be the mortgage the buyer is obtaining to buy the home.

    • Escrow Officer: The escrow officer works for the escrow company and oversees the transaction to purchase a home. They communicate with the buyer about the items needed to ensure the home's title is correct. They hold the buyer's earnest money deposit and closing funds in escrow until they sign the loan documents and the lender approves the closing. Once the lender sends the wire to the escrow officer, they record the deed removing the current owner from the title of the home and placing the buyer as the owner; they also record the deed of trust, which shows that the buyer has a mortgage on the home. They release the funds to the seller and all parties in the transaction who need to be paid for services concerning the sale of the home.

    • Underwriter: The underwriter works for the wholesale lender to verify all the information about the buyer, their income, assets, and credit to ensure they meet the guidelines for the loan amount they need to buy a home. The underwriter also reviews the title report, appraisal, and other documents regarding the home to ensure that the home meets lending guidelines. The underwriter is the person who approves a mortgage loan application for the lender and makes the final decision for the loan to buy a home.

    • Doc Drawer Funder: The person who prepares the paperwork for mortgage loan documents that the seller and buyer sign at closing. Depending on the lender, the doc drawer funder can be one person or two. A doc drawer funder works with the escrow officer to ensure that the property title is properly vested and that all parties agree on the amount needed from the buyer and the lender to close the sale. The doc drawer funder draws up the mortgage loan documents. They review the final signed package and send the wholesale lender’s funds to escrow for closing.

    Notary: A notary is a public official who can witness and validate documents when signed. Most loan closing documents are signed in the presence of a notary because they can meet the buyer anywhere at any time, versus the buyer needing to go to the title company during business hours to sign loan documents.

  • There’s no one-size-fits-all approach to knowing if someone is ready to be a homeowner. When debating renting vs. buying, a person must consider their lifestyle and long-term goals. There are a few signs someone may be ready to purchase a home, including:

    • Feeling financially stable

    • Feeling ready to settle in a specific location

    • Desiring more freedom for home renovations

    • Wanting more space and privacy

    • Reviewing your purchase agreement to update your mortgage loan application to reflect the terms of your offer, like purchase price, earnest money amount, down payment, loan amount, closing date, seller concessions, and any other terms of your purchase contract.

    • Contacting the escrow company to request their fees and the needed documents for your loan, such as preliminary title report, tax certificate, estimated settlement statement, their errors and omissions insurance, wire instructions, licenses and homeowners’ association documents if applicable.

    • Shopping for the best rates and terms for you and your new home!

    • Complete the Uniform Residential Loan Application

      • The broker/lender will help the borrower fill this out. It includes the following:

        • Type and terms of the loan the borrower is applying form, property information, personal information, current and previous employment (most recent 2 years), income, assets and liabilities, declarations, details of the transaction, demographic

    • Documents to Submit

      • Documents the borrower will need to provide include but are not limited to: 

        • Income

          • Most recent pay stubs

          • Most recent two years of tax documents

            • W-2 statements 

            • 1099 statements 

            • Federal tax return

              • Needed for borrowers who are self-employed or using passive income (such as child support/alimony, Social Security SSA/SSDI, etc.) to qualify.

        • Assets

          • Most recent 60 to 90 days of:

            • Checking and savings account statements

            • Retirement account statements

            • Money market accounts

          • Gift funds

            • Must be accompanied by a gift letter

  • To prepare to buy a first home, buyers should call a mortgage broker to determine what they need to do to buy a home. There are things a buyer might need to do or should not do, and a mortgage broker guides the buyer through the process, expediting the home-buying process.

    Additionally, buyers should consider the following:

    • Monitor their credit score through Credit Karma and Experian Boost.

    • Put away their credit cards. Do not carry them regularly.

    • Start a budget and stick to it.

    • Discuss the budget with a spouse, partner, family, and others to ensure everyone understands and respects the budget.

    • Put the budget in a place where everyone can see it. Start educating the family about money.

    • Create a vision board for the new home and include everyone in the project. Put the board out where everyone can see it so they remember why there is a budget and why saving is more important than spending.

    • Cut back on non-essential spending. Make coffee at home, bring lunch to work, and limit the household to one streaming service. Get everyone involved in this process. It is good to have a common goal and an accountability partner.

    • Reward yourself with small treats for sticking to the budget.

  • When buying a home, most people benefit from the expert guidance of a real estate agent. Homebuying is a complex process; an agent’s support goes a long way to minimize the complications buyers may face. The buyer may think they will get a better deal if they go directly to the listing agent, but it may cost them more overall. The listing agent’s client is the seller, and they will always sway the deal in their client’s favor. The buyer is their secondary client, and they will not put the buyer's interest before the seller’s interest. A home buyer needs an expert buyer’s agent to fight for them.

  • Many loan programs can be tailored to fit a borrower’s needs and financial resources, including programs that require as little as 3% down.

  • Mortgage application documentation varies depending on the borrower’s loan application. Some standard documents are needed from everyone, and others are only for some borrowers. An experienced mortgage broker assures their client’s documentation is to move the home-buying process forward.

    Although speaking with a mortgage broker is best, generally, all home buyers must provide the following documentation: 

    • Identification: 

      • A valid, unexpired government-issued identification with your photo. This can be a state ID, driver’s license, or passport.

      • Social Security Card, if available

    • Income 

      • Paystubs covering the most recent 30 days that include year-to-date income

      • W2s for the past two years for all jobs

      • Two years of federal income tax returns for self-employed applicants, both personal and business

    • Assets: Most current two months or quarterly statements for all asset accounts.

      • Checking/Savings

      • Money Market /CDs

      • Investment/Stock accounts

      • Crypto accounts

      • Employee Stock accounts

      • 401K IRS or other retirement accounts

  • We recommend that buyers ask their mortgage broker for a referral to a buyer’s agent. The buyer should interview the real estate agent to make sure they are someone the buyer likes and trusts. This agent will work with the buyer for an extended period, and it’s important that the buyer can like and trust their agent.

    While many people have their real estate agent's license, real estate may not be their full-time job, and that means that a buyer will only have a real estate agent when they are not doing their real job. Home buyers need a full-time real estate agent who only works with buyers and sellers.

  • What a buyer can afford, their credit status, and the cash available for a down payment determines the direction of the home-buying process. We recommend any prospective home buyer speak with a mortgage broker to determine how much home they can afford.

Licensed Mortgage Broker in Arizona, California, and Colorado

Hear From our clients in their new homes

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First-time buyers who wish to start the journey towards mindful lending today should contact our Mindful Money team for expert guidance and personalized solutions tailored to individual needs in Arizona, California, and Colorado.

All types of loans we provide:

  • A Qualified Mortgage is a category of loans with certain, more stable features that help make it more likely that you’ll be able to afford your loan.

    Conventional Mortgages, Conventional Rate, and Term Refinance, Conventional Cash Out Refinance, Conventional Down Payment Assistance Programs, Conventional First-Time Home Buyer Programs, Fixed Mortgages, ARMs Adjustable-Rate Mortgages, FHA Mortgages, FHA Down Payment Assistance Programs, FHA First Time Home Buyer Programs, FHA Streamline Refinance, FHA Cash Out, FHA 203K – Rehab Mortgage, FHA Reverse Mortgages, Non-FHA Reverse Mortgages, VA Purchase Mortgages, VA Jumbo Mortgages, VA Cash Out Mortgages, VAIRRL – VA Interest Rate Reduction Refinance Loan, Manufactured Home Mortgages - Conventional, FHA, VA, Construction Mortgages

  • Non-QM stands for Non-Qualified Mortgage. These loans are for borrowers who may not meet the requirements of standard loan programs. Non-QM loans typically have a special income qualification and are designed for people with unique income streams.

    Purchase, Cash Out, & Rate & Term Non-QM, 40 Year Term Mortgages. Interest Only Mortgages, Jumbo Mortgages, Alternative Income Qualifications for Self-Employed Borrowers, Fixed 2nd Mortgages, HELOC Home Equity Loan of Credit Mortgages, Bridge Loans, Fix & Flip, Foreign National Mortgages, ITIN Mortgages, Investor Loans, More than ten financed properties, DSCR: Rental income used to Qualify, Airbnb and VRBO Short term rentals